Land Conversion Pace Under Uncertainty and Irreversibility: Too Fast or Too Slow?

40 Pages Posted: 19 Jan 2012

See all articles by Luca Di Corato

Luca Di Corato

Ca Foscari University of Venice - Dipartimento di Economia

Michele Moretto

University of Padua, Dep of Economics and Management

Sergio Vergalli

University of Brescia - Department of Economics; Fondazione Eni Enrico Mattei (FEEM), Milan

Date Written: January 19, 2012

Abstract

In this paper stochastic dynamic programming is used to investigate land conversion decisions taken by a multitude of landholders under uncertainty about the value of environmental services and irreversible development. We study land conversion under competition on the market for agricultural products when voluntary and mandatory measures are combined by the Government to induce adequate participation in a conservation plan. We study the impact of uncertainty on the optimal conversion policy and discuss conversion dynamics under different policy scenarios on the basis of the relative long-run expected rate of deforestation. Interestingly, we show that uncertainty, even if it induces conversion postponement in the short-run, increases the average rate of deforestation and reduces expected time for total conversion in the long run. Finally, we illustrate our findings through some numerical simulations.

Keywords: Optimal Stopping, Deforestation, Payments for Environmental Services, Natural

JEL Classification: C61, D81, Q24, Q58

Suggested Citation

Di Corato, Luca and Moretto, Michele and Vergalli, Sergio, Land Conversion Pace Under Uncertainty and Irreversibility: Too Fast or Too Slow? (January 19, 2012). FEEM Working Paper No. 84.2011, Available at SSRN: https://ssrn.com/abstract=1988112 or http://dx.doi.org/10.2139/ssrn.1988112

Luca Di Corato

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Michele Moretto (Contact Author)

University of Padua, Dep of Economics and Management ( email )

via Del Santo 33
Padova, 35123
Italy
+39 049 8274265 (Phone)
+39 049 8274211 (Fax)

Sergio Vergalli

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122
Italy

Fondazione Eni Enrico Mattei (FEEM), Milan ( email )

Corso Magenta 63
20123 Milan
Italy

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